Does the Credible Fiscal Policy Support the Prices Stabilization?

Kuncoro, Haryo

doi:10.1515/revecp-2015-0014

Cited by 5 publications

(5 citation statements)

References 44 publications

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“…The particularly interesting about those results above is the effect of IRP changes on the exchange rates volatility appears to be permanent. Kuncoro (2015) confirms the implementation of IT has been rarely satisfied either in decreasing in-flation rate or in directing the actual inflation rate to its target. It seems the central bank cannot predict well the actual inflation rate due to the existence of low degree of ERPT.…”

Section: Resultsmentioning

confidence: 97%

Interest Rate Policy and Exchange Rates Volatility Lessons from Indonesia

Kuncoro

2020

Journal of Central Banking Theory and Practice

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Whether or not inflation targeting adoption leads to increased volatility of exchange rates is controversial. The volatility increases with inflation targeting as a result of the flexible exchange rate regime. Others argue that inflation targeting delivers the best outcomes in terms of lower exchange rate volatility. The purpose of this paper is to investigate whether interest rate policy in inflation targeting frameworks – that is subjected to control inflation rate – may reduce the volatility of exchange rates. To test the hypothesis, we use monthly data in the case of Indonesia over the period 2005(7)-2016(7). Several control variables are introduced in the regressions. The result of the autoregressive distributed lag model proves the interest rate policy and foreign exchange intervention fail to reduce the exchange rates volatility. It seems inflation targeting in Indonesia puts too much emphasis on stabilizing the domestic currency thus leading to benign neglect of stabilizing its external value, ultimately resulting in increased exchange rate volatility. These findings suggest that central bank credibility plays an important role in conducting inflation targeting policy which operates primarily through a signalling effect.

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Section: Resultsmentioning

confidence: 97%

Interest Rate Policy and Exchange Rates Volatility Lessons from Indonesia

Kuncoro

2020

Journal of Central Banking Theory and Practice

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“…In addition, most studies found that the discretionary fiscal policy significantly appreciatesthe exchange rates as well as the terms of trade. Compared to deficit rule policy credibility, it seems that economic agents are more responsive and pay more attention to discretionary expenditures rather than budget deficit as found by Kuncoro (2015).…”

Section: Resultsmentioning

confidence: 98%

“…Other previous studies have been characterized by the inward-oriented types. They focused on the impact of fiscal policy partially on the inflation rate (Snyder, 1985;Kuncoro, 2015), exchange rate (Abimanyu, 1998), and interest rates (Adiningsih, 2009). Recently, Simorangkir and Adamanti (2010) analyzed the economic impact of fiscal stimulus, Basri and Rahardja (2011) assessed the fiscal position, and Surjaningsih et al (2012) observed output and prices volatility in accordance with the global financial crisis.…”

Section: Literature Reviewmentioning

confidence: 99%

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Can the Credible Fiscal Policy Mitigate the Terms of Trade Fluctuation?

Kuncoro¹

2017

KEK

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This paper examines the links between fiscal policy and terms-of-trade movement in the case of Indonesia over the period 2001-13. Unlike other researchers, this paper explores both the rules-based and discretionary fiscal policies. The earlier factor covers deficit rule and debt rule which are intended to measure the fiscal policy credibility. The later follows Fatás and Mihov (2003; 2006). The OLS estimation of quarterly data reveals that the less credible deficit rule policy and discretionary fiscal policy have a positive impact on the terms of trade. In contrast, the more credible debt rule policy and government size tend to depreciate the terms of trade. Those findings suggest that fiscal policy credibility does not matter in the context of international market. Furthermore, to mitigate the external risks, the government intervention to the international market debt should be limited.

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“…The result showed that fiscal components are helpful tools in stabilizing the CEE states’ economies irrespective of the volatility caused by the economic crisis. A similar study was carried out in Indonesia by Kuncoro (2015), who made an empirical enquiry into the effectiveness of fiscal policy in stabilizing macroeconomic indicators, especially prices in Indonesia, using quarterly data between 2001 and 2013. The study revealed that credible fiscal policy is robust in achieving macroeconomic price stabilization if adequately employed, while incredible fiscal policy does not positively control fluctuations in inflation.…”

Section: Review Of Related Literaturementioning

confidence: 97%

Fiscal Policy and Economic Stabilization Dynamics in Sub-Saharan Africa: A New Evidence from Panel VEC Model and Hodrick-Prescott Filter Cyclical Decomposition

Nkalu

Agu

2023

Sage Open

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This study investigates the dynamics of fiscal policy and economic stabilization using a panel dataset from Sub-Saharan Africa (SSA) sourced from the World Development Indicators (WDI) between 1985 and 2019. The study utilized a panel vector error correction model (VECM) rather than panel vector autoregression (PVAR) after ascertaining the presence of cointegrating equations (existence of long-run relationships). Also, both homogenous and heterogeneous panel unit root processes were utilized to test the panel data’s stationarity before estimating the panel VECM. Again, the cyclical decomposition (Hodrick-Prescott Filter) is adopted in examining the effect of fiscal policy on economic stabilization across countries in SSA. Essentially, the VECM estimation result reveals that both government expenditure (GEX) and total reserves (TRS) have significant long-run relationships but are not substantial enough to stimulate economic growth and stability in the short run. Simultaneously, the Hodrick-Prescott Filter’s (HP-filter) cyclical decomposition confirms the non-stability of economic growth and stabilization in SSA over time. In line with other numerous policy recommendations, the SSA countries’ governments should improve on the policies targeted toward controlling the financial (fiscal) leakages to ensure more robust economic stabilization in the region through increases in total revenue and reserves both in the short and long-run. JEL Classification Codes: E62, E63, F38, F41, H50.

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Does the Credible Fiscal Policy Support the Prices Stabilization?

Cited by 5 publications

References 44 publications

Interest Rate Policy and Exchange Rates Volatility Lessons from Indonesia

Interest Rate Policy and Exchange Rates Volatility Lessons from Indonesia

Can the Credible Fiscal Policy Mitigate the Terms of Trade Fluctuation?

Fiscal Policy and Economic Stabilization Dynamics in Sub-Saharan Africa: A New Evidence from Panel VEC Model and Hodrick-Prescott Filter Cyclical Decomposition

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